People have different reasons for wealth creation – to have a financially independent situation, to secure the future of their loved ones, to start a business or to purchase. One of the ways that you can gain wealth is through investments. While investing in the stock market is the preferred option for many, there are different financial instruments that one can take advantage of.
One such instrument is a ULIP plan. These plans have been gaining a lot of attention among investors for its many benefits. If you are thinking about investing in one and want to know how to select the one that suits your needs, read on to know more.
What is a ULIP?
A unit linked insurance plan is a type of life insurance policy. In this policy, you get the dual benefits of investment and insurance. The premium paid for the policy is used for the purpose of investment and insurance cover. You get to invest in equity and debt funds. Equity funds have a high-risk factor but offer higher returns. On the other hand, debt funds have a low-to-medium risk factor and offer medium returns. The insurance cover in a ULIP plan provides financial security to the family of the plan-holder.
How to choose a ULIP plan?
There are different factors that can help you make a decision on how to choose a ULIP plan:
- Policy duration
Investors who opt to invest in a ULIP go for a long-term policy. The main reason behind opting for a long-term policy is that the benefits that you get to enjoy with the ULIP policy cannot be accomplished in a short-term policy. The returns in ULIPs increase as time goes by. Any impact that your investments or returns face due to different risks can be corrected only in a long-term policy. It is impossible to regain the lost investment or returns in a short-term policy. It is always advised to stay invested in a ULIP with a long-term policy to enjoy greater benefits and easily accomplish your life goals to have a secured future.
- Life cover
Life is full of unpredictable risks for which you cannot be mentally prepared. However, you can always be financially prepared for it. This can be done with the help of the other benefit of the policy which is the life insurance cover. One part of your premium is used in providing the life insurance cover to your loved ones. Having a co-earner is helpful as this could help you in allocating less towards the life cover. However, if you are the sole earning member in your family, then you might be required to dedicate a higher amount towards the life insurance cover. A co-earner might help in covering any immediate expenses without the need of a higher life cover. Opt for a higher life cover only if you, the insured, are the sole earning member of your family, and there are dependents who survive on your income.
- Financial assistance
One of the major reasons for most people who invest in ULIP is to gain good returns to accomplish their life goals. A life goal could be something as simple as saving for a dream home or something long-term such as saving for your child’s education and marriage. For every individual, a life goal can be anything. Based on what your life goal is, you should select the policy that could help you in accomplishing that. The types of funds in ULIPs can help you maximise your returns and get greater maturity benefits which could help in accomplishing your life goal.
These are just a handful of factors of that can help you decide which plan would be more beneficial for you. Before you select a plan of your liking, use the ULIP return calculator on your insurer’s website. The calculator will help you in giving an idea about which plan is suitable as per your needs. You can also discuss about the different plans with your insurance advisor.
